5 Steps to Improving Your Credit Score
Five proven strategies to raise your credit score: check all three reports, pay down cards, shop for credit smartly, pay on time and be patient.
In the world of personal finance, a lot of things are uncertain: should you pay off debt or save? Purchase a home or rent? Invest in your company’s 401(k) or go it alone with an IRA? Sometimes it certainly seems like there are more questions than answers!
However, there is one thing that’s very clear about our financial lives: our credit scores matter (opens in a new tab). In fact, your credit score is undoubtedly one of the most important digits attached to your name. After all, it impacts your ability to purchase a home, the interest rate you’ll get on a loan, and possibly even your job prospects. Not to put too fine a point on it, but keeping your credit in tip top shape is one of the best money moves you can make.
Unfortunately, though, many of us have made a money mistake (or two) in the past, and our credit scores aren’t in the pristine condition they should be. If this sounds familiar, you’re probably on the look-out for some tips to boost your score. Well, look no further than these five proven strategies for putting your past financial missteps to bed and waking up to a brighter fiscal future!
1. Cull Your Credit Reports – All Three
According to a Federal Trade Commission (opens in a new tab) study, one in five Americans has an error on at least one of their three credit reports. The three major credit reporting agencies – Experian, TransUnion, and Equifax – each keep a record of how you’ve handled credit in the past, and mistakes on any of those reports could result in a ding to your credit score. This is why it’s very important to regularly look over your credit reports and make sure each is accurate. You’re entitled to free reports from each of the three credit reporting agencies, and they now make them available every week – go to annualcreditreport.com (opens in a new tab) for more information.
2. Pay Down Your Credit Cards
A whole 30% of your credit score is determined by how much outstanding debt you have so it’s important to prioritize reducing the amount you owe. High credit card balances are particularly damaging to your credit score, so throwing as much extra cash as you can at your cards will serve to boost your credit score quickly.
3. Shop For New Credit Strategically
If you’re looking for a new car or home loan, be careful about how you shop for credit. Ten percent of your credit score is determined by how much new credit you’ve obtained; the scoring models recognize several credit inquiries in a short period of time as an attempt to find a single loan. If you spread your inquiries out too much, they will be interpreted as several different attempts at obtaining new credit, which will damage your score. So if you’re in the market for a loan, limit your search to a 14-day period of time, since some scoring models use a window that short.
4. Pay Your Bills On Time And In Full
The largest factor impacting your credit score, at about 35%, is your past history with making loan and other credit payments on time. If you find yourself forgetting to pay bills by their due dates, this is probably dragging your credit score down quite a bit. To prevent yourself from continuing to pay bills late, buy a calendar and map out the due dates for all your monthly payments. Or alternatively, set an alarm on your phone to alert you pay your bills in a timely fashion. Either way, keeping up with your bills is essential to repairing a poor credit score.
5. Be Patient
While there are certain moves that will boost your credit score faster than others (like paying down your credit cards; see above), the truth is that it will take several months before your improved financial habits will be reflected in your credit score. Just remember to be patient and keep up with your newfound money skills. Your discipline will pay off in no time!
The bottom line: Improving your credit score might seem daunting, but it can be done. Making just a few of the changes above can have a big impact on your score, so jump on the path to credit-worthiness today!
Editorial note: Scoring models and the free weekly report program are set by FICO, VantageScore and the credit bureaus and can change. Percentages reflect the standard FICO weighting.